alu-druckguss gmbh adb group - tase · 2013-08-15 · according to the expert valuation, there is a...

alu-druckguss GmbH ADB Group Purchase Price Allocation

December 2012

Section 1: The Acquisition

Purchase Price Allocation | ADB Group 2

BDO Ziv Haft Amot Bituach House Building B, 48

Menachem Begin Road, Tel Aviv 66180 Israel www.bdo.co.il

August 16, 2013

Tadir-Gan Europe Ltd.

Re: A Purchase Price Allocation of alu-druckguss GmbH

In accordance with a request by Tadir-Gan Europe LTD (Hereinafter: "Tadir-

Gan Europe" or "The purchaser"),subsidiary company of Tadir-Gan Precision

Products (1993) LTD. (Hereinafter: "Tadir-Gan") BDO Ziv Haft Consulting &

Management Ltd. (Hereinafter: "BDO"), has performed an investigation and

valuation of the net assets of ADB Group (Hereinafter: "The Company"

or/and the "ADB Group"), acquired by Tadir-Gan Europe, on January 8, 2013

(Hereinafter: the "Valuation Date").

The valuation is based upon data and information delivered to us by the

purchaser and its management. Among data and information used are:

The Company's unaudited financial reports as of December 31, of the

years 2011-2012;

The acquisition Details;

The Company's budget for 2013;

The Company's sales program for 2013-2017;

Customers sales planning for 2013-2017;

Valuation of current market value of the equipment, as of December

31, 2012, by an independent estimator;

Other information provided by the management, written or oral;

Discussions with the management;

Publicly available information regarding the industry.

While making this PPA, BDO used the data and information supplied by the

purchaser without examining its correctness and completeness. The data

and information received from the purchaser were assumed correct, and any

reliance thereof is neither confirmation nor verification of their validity.

BDO and its employees are not responsible for the completeness or accuracy

of the aforementioned data, or for any inaccuracy, error, omission or any

other fault caused by using the aforementioned data.

The valuation of the Company's assets involves assumptions, estimates and

forecasts, yet supposed to reasonably assess the economic value based on

the available information at the time of the evaluation. Any change in the

different variables or supplemental information may affect the outcomes of

the evaluation, and consequently the conclusions of the analysis.

This Purchase Price Allocation report contains forward-looking statements,

with respect to the Company, its financial condition and projected results of

its operations.



These forward-looking statements are subject to risks and uncertainties,

including, but not limited to, changes in general economic conditions,

failure to forecast the market trends, and specific risks associated with the

nature of target markets and unanticipated events or circumstances.

Changes in economic conditions and market trends might significantly affect

the valuation.

Details regarding the valuation specialist

BDO was founded by the partners of BDO Certified Public Accountants. BDO

is part of the international BDO network, provides a full range of business

services required for national and international businesses in any sector.

BDO has vast experience in the following fields: business valuations,

financial and tax due diligence, goodwill and intangible assets valuations,

financial analyses, business plans, project finance PFI/PPP advisory, M&A,

investment banking and more.

Your exclusive remedy and BDO’s sole liability to you, for any cause

whatsoever will be limited to the fees paid to BDO under this Agreement.

The foregoing limitation will apply regardless of the form of action, whether

contract or tort, including without limitation, negligence, except that such

limitation shall not apply in the case of gross negligence, revenue, data, use

of other commercial injury, or any special, incidental, indirect or

consequential damages, suffered by Tadir-Gan or any third party, whether

or not BDO has been advised of the possibility of such loss, injury, damages

or third party claim, under any cause of action arising out of or relating to

this Agreement.

You acknowledge that Tadir-Gan Europe is solely responsible for the

payment of all fees, expenses, indemnification or other amounts due under

or in connection with this engagement. Tadir-Gan Europe shall indemnify,

defend, hold harmless, and release BDO from and against any and all claims,

lawsuits, judgments, proceedings, damages, costs, and expenses (including

court costs and reasonable attorney’s fees) in any manner relating to,

arising out or associated with this engagement or any of the services

provided by BDO under this Agreement, except that such indemnity shall not

apply in the case of gross negligence or willful misconduct by BDO.

BDO reserves the right to update the evaluation in light of new information,

which was not introduced prior to this analysis.

We would be delighted to be of any assistance.

Respectfully submitted,

BDO Ziv Haft

Consulting & Management Ltd.



Results

Results Results

The balance sheets data as of the Valuation Date is based on the Company's

financial data as of December 31, 2012.

According to the assumptions detailed in this report, we have arrived to the

conclusion that some of the acquired intangible assets were needed to

revaluate to reflect market value. The following table provides details

regarding the Company's assets and liabilities (in thousands €):

Source: Company's financial reports and BDO analysis.

Source: company's financial reports and BDO analysis.

Thousands € Note Book Value Fair value Difference% of

Purchase Price

Assets

Current Assets

Cash and Cash Equivalents 2,029 2,029 – 26.7%

Account Receivable 1,805 1,805 – 23.7%

Other Receivable 1 954 954 – 12.6%

Inventories 2 2,377 2,377 – 31.3%

Fixed assets 3 12,549 14,076 1,526 185.2%

Deferred tax 4 – (473) (473) -6.2%

Intangible assets 34 34 – 0.4%

Total Current Assets 19,748 20,801 1,053 273.7%

Non Current Assets

Long Term Investments 8 8 – 0.1%

Total Non Current Assets 8 8 – 0.1%

Total assets 19,756 20,809 1,053 273.8%


Purchase Price

Liabilities

Current Liabilities

Short term Liabilities 5 399 399 – 5.3%

Account Payable 6 1,602 1,602 – 21.1%

Other Payable 1,817 1,817 – 23.9%

Employee provision 7 – 198 198 2.6%

Deferred tax 4 – (61) (61) 0.0%

Total Non Current Liabilities 3,819 3,956 137 52.1%

Non Current Liabilities

Long term Liabilities 8 5,781 5,781 – 76.1%


Deferred tax 4 – (76) (76) 0.0%

Total Current Liabilities 5,781 5,951 170 78.3%

Total Liabilities 9,600 9,907 307 130.4%

Total net assets 10,155 10,902 746 143.4%

Intangible Assets

Customers Relationships 10 – – 0.0%

Total Intangible Assets – – 0%

Gain from bargain purchase 11 (3,302) (43%)

Purchase Price 12 7,600



Results

Notes Notes

1. Other Receivable- According to the Company, the receivable, as of the

Valuation Date, is attributed to short-term operating amounts, which

received by the customers during the last business year and expected to

be charged during the current year. Therefore, there is no difference

between the book value and the fair value of the Trade and Other

Receivable balance and no adjustments have been made.

2. Inventory- The book value of the Company's inventory is €2,377 thousand

and consists of raw materials and other (22%), finished goods (1%) and

work in process (77%). According to Company's management and our

analysis there is no difference between the book value and the fair value

of the Inventory balance and no adjustments have been made.

3. Fixed Assets- The Company's fixed assets, as presented in its financial

report, consist mostly of buildings improvements, Moulds and machinery,

office furniture and prepayments and construction in progress. The fixed

assets are located at the Company's facilities in Germany and Poland and

serve the Company's operating activity.

According to Company's management, the book value of the buildings

improvements, office furniture and prepayments and construction in

progress, represents their fair value. However, the book value of the

machinery does not reflect their fair value. Therefore, we based the

machinery value on an assessor valuation, as of December 31, 2012,

which was received by Tadir-Gan Europe. This valuation was made by an

expert, on behalf of the Company, and was not examined by us.

According to the expert valuation, there is a difference between the book

value and the fair value of the machinery assets of €1,526 thousand. In

addition, the weighted average economic useful life of the machinery,

according to the assessor valuation, is about 18 years.

4. Deferred Tax – received by Company's management.

5. Short term Liabilities- According to the Company, the Company's short

term financial liabilities consists of liabilities to banks. Since this

liability is expected to be paid in the coming year, no adjustments have

been made.

6. Account Payable- According to the Company, the Account Payable, as of

the Valuation Date, is attributed to short-term operating amounts,

which are received by the suppliers during the last business year and

expected to be charged during the current year. Therefore, there is no

difference between the book value and the fair value of this balance and

no adjustments have been made.

7. Current Employee Provision- According to Tadir-Gan Europe's

management, as part of the reorganization attributed to the business

combination, Mr. Jochen Krüger (former owner), which was also one of

the Company's two CEO's, has finished his role in ADB as of April 1st,

2013.



Results

Notes Notes

According to his constrain agreement; the Company will continue to pay

salary to Mr. Krüger until the restrictive employment agreement will

terminate, at the end of 2014. We evaluated the fair value of the

liability to pay Mr. Krüger's salary in an amount of €445 thousand, while

the Current Liability was set on €198 thousand. For more information

see appendix D.

8. Long term Liabilities- According to the Company, the Company's long

term financial liabilities are liabilities to banks, which are presented in

its fair value, since the interest on these liabilities is fixed and

represents the market interest for company in ADB risk level. Therefore,


9. Non Current Employee Provision- As mentioned in note 5, we evaluated

the fair value of the liability to pay Mr. Krüger's salary in an amount of

€445 thousand, while the Non Current Liability was set on €247

thousand. For more information see appendix D.

10. Customers Relationships- As part of the business combination, we

evaluated the fair value of the Company's Customers Relationships, as an

intangible asset, using the Income Approach. According to the valuation

the fair value of the intangible asset was set to zero. For more details

see Chapter 7- Valuation of Intangible Assets.

11. Gain from bargain purchase- The difference between the purchase

price and the fair value of the Company's net assets and intangible

assets, represents the gain from bargain purchase. The gain from

bargain purchase is attributed to the seller's pressure to sell their

holdings in the Company. In 2007, IKB Equity Capital Fund bought 49% of

the Company. During the global economic crisis, in 2009, the Company's

activities declined and the Company entered into the process of self

insolvency by the end of 2010. IKB fund decided to close their business

in the automotive area as of few investments that fail to achieve yield

along with few years of constrains in the industry in Europe, there for

they made a decision to sale the Company as soon as possible. 51% of

the Company's shares were held by private shareholders, which were

required by contract, to sell their holdings whether IKB Fund decides to

(Bring Along). In this transaction, Tadir-Gan Europe seized the

opportunity, and acquired 100% of the Company's shares, at a bargain

price. The Purchase Price is allocated to the tangible, with any

remainder allocated to gain from bargain purchase. Accordingly, the fair

value of the gain from bargain purchase totalled to approximately

€3,637 thousand.

12. The purchase price- According to the transaction agreement the

purchase price of the Company was €7,600 thousands. For more

information see Section 1- The Acquisition.



Table of Contents

The Acquisition 8

Company Overview 10

Financial Statements 15

The Purchaser 18

Market Overview 20

Methodology 23

Valuation of Intangible Assets 32

Results 39

Appendix 43



Section 1

The Acquisition



The Acquisition

The Acquisition The Acquisition

On October 25th, Tadir-Gan Europe signed an agreement to acquire the full

ownership of ADB Group, a limited partnership incorporated in accordance

with German law, operating in the production, processing and marketing of

the assemblies mechanical parts from aluminum for the automotive industry

(hereinafter: "the agreement").

According to the agreement, the purchaser will acquire, on the closing date,

through the partners of ADB Group, their full rights of the Company, so that

ADB will become a wholly owned corporation of the purchaser.

Consideration of the agreement, Tadir-Gan Europe will pay an amount of

€7,600 thousands (€7,200 thousands for ADB and €400 thousands for ADP).

The transaction is subject to several conditions: the approval of the German

antitrust authority, absence of any prohibiting regarding the closing of the

transaction, no change has occurred regarding the companies and removing

enslaves on the Company's selling rights. From the amount of €7,600

thousands, €5,600 thousands will be paid to the sellers at the closing date

and €2,000 thousands will be held in a trust account for a period of 18 and

24 months from the closing date, until all conditions detailed above are

fulfilled.

ADB Group is engaged in the production, processing and marketing of

products manufactured by precision pressure casting of aluminum alloys.

The products are manufactured using complex casting systems. Most of the

Company's products are intended for vehicles, and include, in particular,

various mechanical assemblies for the automotive industry.

On January 8th, 2013, the agreement was closed between ADB group and

Tadir-Gan Europe.

On March 12th, 2013 the agreement was closed between ADP and ADB.

Section 2: Company Overview


Section 2

Company Overview



Company Overview

General Description General Description

ADB Group is engaged in the production, processing and marketing of

products manufactured by precision pressure casting of aluminum alloys.

The products are manufactured using complex casting systems. Most of the

Company's products are intended for the various types of automotive and

mechanical assemblies industries.

The Company employs 354 workers of which approximately 296 employees

are based in Brieselang, Germany, and 58 employees in Nowa Sól, Poland.

Processing works are carried out in Germany, the main production plant of

the Company, whereas the manpower-intensive work, such as processing,

trimming or sandblasting, is carried out in Poland. The process in Poland is

required for approximately 90% of the products made in Germany.

In 1869, Ludwig Loewe & Co. was founded in Berlin. The company was the

first supplier of die-casting in Europe, since 1906. In 1983 alu-druckguss

GmbH & Co. Berlin KG was founded as it took over Ludwig Loewe's die-

casting operation and opened another facility in Brieselang, Germany. As the

Company expanded its manufacturing capacities, in 1991 alu-druckguss was

founded and in 2001 another factory was built in Nowa Sól, Poland, with the

purpose of lowering cost production.

In 2010, the Company entered into controlled insolvency proceedings,

following the difficulties that have been created on account of a sharp

decline in automotive industry in general, due to the economic crisis that

began in 2008.

In 2011, the facility in Berlin was shut down on the account of unprofitable

manufacturing. As a result, the Company lost 15% of its revenues (the other

products manufactured in another factory), however the Company's profit

increased due to the reduced production of products with small margins.



Company Overview

Products Products

ADB Group is a supplier of aluminum die-casting components, mostly for the

German automotive industry. The Company offers its customers a full range

of services for high-quality die-cast aluminum with complex mechanical

machining and for the assembly of system components.

Die-casting is a metal casting process which occurs by compressing the

molten metal under pressure into the mold cavity using vacuum technique.

Most die castings are made from no ferrous metals. This method is suitable

for a large number of medium-sized castings. These castings have a very

good surface finishing and dimensional consistency. The Company mainly

produces aluminium die-casting components for the automotive industry:

engine components, transmission and steering components. The Company

also manufactures non- automotive products, representing 2% of its total

sales. The Company's products are characterized by their design and

production process. The main distinct features are: flatness, stiffness and

pressure tightness.

Engine components

Sealing flanges- form the interface between engine and transmission.

Sealing flanges is the core product of the Company and its special

expertise.

Cylinder heads- seals the combustion engine. The Company provides

benefits for its customers, as the products are pre- finished and pre-

assembled so that it's ready for immediate installation.

Filter housings- hold the oil filter. Provided for commercial vehicles

only.

Oil pans- produce the engine oil for lubrication of engine components.



Company Overview

Products Customers

Transmission and steering

Gearboxes- close the transmission which transfers the engine power to

the axle. Manufactured using a sensitive electronic system.

Gear shift covers- hold the shift fork. Manufactured with sensors used

in modern transmission systems.

Transmission support- transmission isolation from passenger's

compartment and intensifying the transmission in a specific location.

OEM Customers

The Company is an original equipment manufacturer for several clients.

The automotive OEMs are the Company's main customers group. These

close relations are characterized by a long term relationship, joint R&D

and high loyalty. Among the OEM customers are: VW Group (VW 49%, Audi

30%), MAN (2%) and DAIMLER. The OEM customers represent 81% of the

Company's customers.

Tier-1 customers

The Company manufactures vehicle parts for its Tier-1 customers, which

are not original car spare parts. Joint ventures between the Company and

the customer create a standardization of products and provide the

customer with a shorter response time. Main customers of this group are:

Koki (9%), ZF (3%), Hengst (2%) and DeltaTech (1%). The Tier-1 customers

represent 16% of the Company's customers.



Company Overview

Customers Research and Development

ADB Group is a single source supplier for almost all of its products. The

Company carries out sales to its customers while signing employment

contracts of 5-7 years with each client. The Company has established a

strong and stable relationship with its customers: during the insolvency

proceeding in 2010-2011, the Company did not suffer from any customer

desertion or withdrawal of orders. Furthermore, the Company was awarded

the title of being one of the top 10 suppliers for aluminum die-casting

components of the VW Group 2018 supplier strategy. The Company employs

a loyal workforce and its employees were highly committed as witnessed

during the insolvency proceedings. ADB Group expects a positive market

development for aluminum die-casting, which will be driven by a growing

automobile industry. Due to strong customer service and close R&D

collaboration with its main OEM customers, the Company expects to benefit

from the relations with its customers well beyond the expected term of five

years, in which the scope of work with the clients is known.

The R&D department concentrates primarily on the development of new

casting cells and trimming tools and on designing CAD (computer aided

design). The main virtue of the R&D department is that it is able to help the

Company's clients to improve their products. The OEM collaboration creates

initial components and the R&D department optimizes the die-casting and

machining.

Aluminum is an eco- friendly material: in 2012, up to 95% of the aluminum

used in automobiles is collected and reused. According to the European

guideline for the abandonment of vehicles, by 2015, 95% of their weight

should be recovered or re-used.

Employees

All employees of the Company received substantial training and have high

level of expertise. Even thought majority the workers are not unionized,

they remain loyal to the Company. One way of pointing out the motivation

and dedication is by looking at the consistency and stability of manufacture

levels over time. The Company motivates its employees using a fitness bonus

and performance bonus. As of the valuation date, the Company's employees

are total to 354 (318 are production employees, 5 are marketing employees

and the rest are at the management department).

Section 3: Financial Statements


Section 3

Financial Statements



Financial Statements

Profit and Loss Statement Profit and Loss Statement

The following table presents the Company's profit and loss statements for

the twelve months ending on December 31, for the years 2011-2012

(thousands €);

Source: The Company's financial reports.

The following graph presents the Company's revenue (thousands €) and gross

profit tendency, during the years 2011-2012;

Source: BDO analysis.

Thousands € 2011 2012

Net Revenue 39,658 34,665

% growth (13%)

Costs Of Products 34,650 30,903

% of revenue 87% 89%

Gross Profit 5,008 3,762

Gross profit % 13% 11%

Sales and marketing 813 826

% of revenue 2% 2%

General and Administrative 1,656 1,932

% of revenue 4% 6%

Opereating expenses 2,469 2,758

% of revenue 6% 8%

Operating Profit 2,539 1,003

% Operating Profit 6% 3%

Income from banks loan forgiveness 10,333 26

% of revenue 26% 0%

Finance income, net 9,939 (424)

% of revenue 25% (1%)

Other expenses (4,441) 545

% of revenue (13%) 2%

Profit before Tax 16,919 34

% Profit before tax 43% 0%

Tax expenses (income) (8) (2)

% of revenue (0%) (0%)

Net profit 16,911 32

% Net Profit 43% 0%

39,658

34,665

13%

11%

10%

10%

11%

11%

12%

12%

13%

13%

32,000

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

Net Revenue % Gross profit



Financial Statement

Balance Sheet Balance Sheet

The following table presents the Company's balance sheets as of December

31, for the years 2011-2012 (thousands €);

Source: Company's financial reports.

Source: Company's financial reports.

Thousands €

Current Assets

Cash and Cash Equivalents 2,463 2,029

Account Receivable 837 1,805

Other Receivable 719 954

Inventory 2,695 2,377

Tangible assets 13,408 12,549

Intangible assets 60 34

Total Current Assets 20,182 19,748

Non Current Assets

Long Term Investments 8 8

Total Non Current Assets 8 8

Total assets 20,190 19,756

December

31, 2012

December

31, 2011 Thousands €

Current Liabilities

Short term Liabilities – 399

Account Payable 171 1,602

Other Payable 3,186 1,817

Total Current Liabilities 3,357 3,819


Long term Liabilities 6,163 5,781

Other financial liabilities 604 –

Total Non Current Liabilities 6,768 5,781

Equity 10,065 10,155

Total Capital & Liabilities 20,190 19,756

December

31, 2012

December

31, 2011

Section 4: The Purchaser


Section 4

The Purchaser

Section 4: The Purchaser


The Purchaser

General

Tadir-Gan was established in October, 1993. The company has since

gathered wide experience in the fields of Aluminum HPDC and the

machinery industry. In 2004, Tadir Gan's shares were listed for trade on the

Tel Aviv stock exchange.

Tadir-Gan is engaged in the manufacturing and marketing of aluminum

complexes, and magnesium. The main products which the company

manufactures are oil pans, valve covers, transmission parts and other

aluminum products. Tadir Gan's main market is the automotive industry.

ADB group, As a result of the financial crisis which took place in 2009,

entered into self insolvency proceedings in 2010. The Company's minority

shares were held by IKB Equity Capital Fund, since 2007, as well as the

company's sales rights.

During the years 2009 and 2010 ADB experienced financial difficulties and

operational losses, Tadir-Gan Europe has acquired the ADB shares after two

years of profitability (2011 and 2012).

Tadir-Gan and the ADB Group are looking forward to a good synergy. By

using the integration between the companies, both companies sales volume,

for each existing or new customer, are expected to grow fundamentally.

Section 2: Market Overview


Section 2

Market Overview



Market Overview

Industry background Industry background

According to the Global Economic Crisis study, made by the International

Labour Office of Geneva, Switzerland, by the end of 2009, it was evident

that the automotive sector was one of the industries hardest hit by the

financial and economic crisis of 2008 and 2009.

During 2008, the demand in the automotive industry collapsed to a degree

never experienced before. In the United States, the beginning of 2008 had

already seen a significant fall in demand for light trucks, and the overall fall

in demand that followed was felt significantly.

The following chart presents the international car sales (in millions of units):

Source: International Labor Office of Geneva, 2010.

In several markets, such as Europe, Japan and the United States, financial

measures were taken to support this sector, such as subsidies for the

purchase of cars (under the cover of Magritte programs: polluting old cars).

The United States also enabled the massive aid program in history, saving

two companies vehicles: General Motors and Chrysler. In the European

industry, the sales of private cars decreased by 15% and commercial vehicles

decreased 30%, the production of passenger cars decreased by 25% and

commercial vehicles by 60%.

According to the ACEA (Europian Automobile Manufacturers Association)

Europe is the world’s largest vehicle producer with an output of over 17

million passenger cars, vans, trucks and buses per year, accounting for 24%

of world vehicle production. The automotive sector contributes positively to

the EU trade balance with a €114.1 billion surplus. This contribution is highly

significant today as the EU economy as a whole struggles with a total trade

deficit for goods of €152.8 billion (november 2012).

The 16 ACEA members operate in 22 European countries with a total of 210

plants, producing passenger cars, light commercial vehicles or vans, buses

and coaches, medium sized and heavy-duty trucks, and engines. Typically,

automobile plants group a large number of automotive suppliers at the same

location or in the vicinity, contributing enormously to the economy of

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

- - 2012f 2013f

Canada

United States

Mexico

Germany

Russia

China

India

Brazil



Market Overview

Industry background Industry background

regions and countries. Other materials and automotive parts are supplied

from elsewhere in Europe and around the globe.

Between 2007 and the end of 2012 new car registrations are expected to

have dropped by over 3 million. This translates into a fall from 15.5 million

to about 12 million units - making 2012 the worst year since 1995. However,

the decrease in demand and manufacturing is not consistent; some

manufacturers are operating at 50-60% of their capacity, whereas others are

at 80-90% or even higher.

Even though the automotive markets in Germany and Western Europe were

strongly knocked by the financial and economic crisis starting in 2008, the

Sales figures for the three largest markets – Germany, France and Italy – are

softening the devastating situation in Europe.

According to J.P.Morgan, the global economy is beginning to recover from

the recession. Growth should gradually increase, even as the Euro area

experiences recession. Although growth is expected to be modest, with the

US rising 2.5%, a recognition that the global expansion remains on track will

lift confidence and asset prices. ]

According to the Global Economic Research of 2013, of the Scotiabank of

Canada (published on December 27, 2012) the cyclical recovery in global

auto sales that began in mid-2009 is expected to remain intact. Over the

past three years the average growth in the auto industry was at 7%. The

economists of the Scotiabank of Canada expect a further 4% advance in

2013, driving global volumes to the fourth consecutive annual record.

According to Automotive News Europe, Volkswagen's desire to launch a low-

cost brand. IHS Automotive analysts expect the world auto market to grow

by 3.4 million cars between 2012 and 2015, which most of that growth can

be tapped with affordable types of vehicles aimed at new buyers.

Competitors- there are many aluminum cast houses around the world. The

Company cannot estimate the share of the total global production of

aluminum die- cast, but it believes that the Company's share of global

production is even smaller. The Company's main competitors include Albert

Handtmann, BDW Group, Rufini and Druckguss Heidenau. The Company also

competes with its Indirect competitors on limited extent, such as KSM

Casting, Brabant, Gruber & Kaja and others.

Substitute products- competition between manufacturers that produce by

die- casting process, makes attempts to produce similar parts at lower costs

using other raw materials rather than aluminum.

Section 4: Methodology


Section 4

Methodology



Methodology

General The Acquisition Method

According to IFRS 3R, An entity shall account for each business combination

by applying the acquisition method.

Applying the acquisition method requires:

a) identifying the acquirer;

b) determining the acquisition date;

c) recognising and measuring the identifiable assets acquired, the

liabilities assumed and any non-controlling interest in the acquire; and

d) recognising and measuring goodwill or a gain from a bargain purchase.

Identifying the acquirer

For each business combination, one of the combining entities shall be

identified as the acquirer.

Determining the acquisition date

The acquirer shall identify the acquisition date, which is the date on which

it obtains control of the acquiree.

The date on which the acquirer obtains control of the acquiree is generally

the date on which the acquirer legally transfers the consideration, acquires

the assets and assumes the liabilities of the acquiree—the closing date.

Recognising and measuring the identifiable assets acquired, the liabilities

assumed and any non-controlling interest in the acquiree

As of the acquisition date, the acquirer shall recognise, separately from

goodwill, the identifiable assets acquired, the liabilities assumed and any

non-controlling interest in the acquiree.

Classifying or designating identifiable assets acquired and liabilities

assumed in a business combination

At the acquisition date, the acquirer shall classify or designate the

identifiable assets acquired and liabilities assumed as necessary to apply

other IFRSs subsequently. The acquirer shall make those classifications or

designations on the basis of the contractual terms, economic conditions, its

operating or accounting policies and other pertinent conditions as they exist

at the acquisition date.



Methodology

Measurement principle Bargain purchases

The acquirer shall measure the identifiable assets acquired and the

liabilities assumed at their acquisition-date fair values.

Recognising and measuring goodwill or a gain from a bargain purchase

The acquirer shall recognise goodwill as of the acquisition date measured as

the excess of (a) over (b) below:

(a) The aggregate of:

1. the consideration transferred measured in accordance with this IFRS,

which generally requires acquisition-date fair value;

2. the amount of any non-controlling interest in the acquiree

measured;

3. in a business combination achieved in stages, the acquisition-date

fair value of the acquirer’s previously held equity interest in the

acquiree.

(b) The net of the acquisition-date amounts of the identifiable assets

acquired and the liabilities assumed measured in accordance with this IFRS.

Bargain purchases

Occasionally, an acquirer will make a bargain purchase, which is a business

combination in which the Net assets Acquired exceed the purchase price. If

that excess remains after applying the requirements, the acquirer shall

recognise the resulting gain in profit or loss on the acquisition date. The gain

shall be attributed to the acquirer.

Before recognising a gain on a bargain purchase, the acquirer shall reassess

whether it has correctly identified all of the assets acquired and all of the

liabilities assumed and shall recognise any additional assets or liabilities that

are identified in that review. The acquirer shall then review the procedures

used to measure the amounts this IFRS requires to be recognised at the

acquisition date for all of the following:

(a) the identifiable assets acquired and liabilities assumed;

(b) the non-controlling interest in the acquiree, if any;

(c) for a business combination achieved in stages, the acquirer’s

previously held equity interest in the acquiree; and

(d) the consideration transferred.

The objective of the review is to ensure that the measurements

appropriately reflect consideration of all available information as of the

acquisition date.



Methodology

Approaches to Valuation Approaches to Valuation

There are few accepted approaches to valuate an asset's fair value:

1. Market approach;

2. Income approach;

3. Asset-based approach.

Within each category, a variety of methodologies exist to assist in the

estimation of fair value. The following sections contain a brief overview of

the theoretical basis of each approach, as well as a discussion of the specific

methodologies relevant to the analyses performed.

Market Approach

The market approach references actual transactions in the equity of the

enterprise being valued or transactions in similar enterprises that are traded

in the public markets. Third-party transactions in the equity of an enterprise

generally represent the best estimate of fair market value if they are done

at arm’s length. Under this approach, there are two primary methods. The

first often referred to as the Guideline Transactions Method, involves

determining valuation multiples from sales of enterprises with similar

financial and operating characteristics and applying those multiples to the

subject enterprise.

The second, often referred to as the Guideline Public Company Method

involves identifying and selecting publicly traded enterprises with financial

and operating characteristics similar to the enterprise being valued. Once

publicly traded enterprises are identified, valuation multiples can be

derived, adjusted for comparability, and then applied to the subject

enterprise to estimate the value of its equity or invested capital.

Income Approach

The income approach focuses on the income producing capability of the

asset. The underlying premise of this approach is that the value of an asset

is the present value of the future earning capacity that is available for

distribution to investors in the security or asset. A commonly used method

under the income approach is the discounted cash flow analysis. A

discounted cash flow analysis involves forecasting the appropriate cash flow

stream over an appropriate period and then discounting it back to a present

value at an appropriate discount rate. This discount rate should consider the

time value of money, inflation, and the risk inherent in ownership of the

asset or security interest being valued.



Methodology

Approaches to Valuation

Valuation of the intangible assets

Asset-Based Approach

The Asset-Based Approach is based upon the concept of replacement as an

indicator of value. A prudent investor would pay no more for an asset than

its replacement or reproduction cost. This approach may be adjusted such as

depreciation from physical deterioration and functional obsolescence. This

approach generally provides the most reliable indication of the value of land

improvements, special-purpose buildings, special structures, systems, and

special machinery and equipment.


The valuation of the intangible assets of acquired companies is particularly

important since the most valuable assets of this type of company generally

are not recorded on the balance sheet before acquisition. Intangibles that

may exist at the time of the acquisition include: (a) base (or core),

developed and in-process technologies; (b) customer- related intangibles

(such as a distribution network or a customer base); (c) trademark(s), trade

name(s), and related intellectual property; and (d) covenants not-to-

compete.

In the determination of the Fair Value for each intangible asset, each

assessment should consider specific factors of the asset, including (but not

limited to):

The value of economic or monetary benefit to market participants;

The remaining economic life;

The relative risk profile.

Assembled workforce was also identified for the valuation analysis, but was

incorporated as part of goodwill. IFRS3R - Business Combinations, requires

that the assembled workforce shall not be recognized as an intangible asset

apart from goodwill in a business combination. Nevertheless, the assembled

workforce was identified separately for the purpose of calculating the

appropriate contributory charge needed to arrive at the Fair Value of each

of the Intangible Assets on a standalone basis.

As a result of our review, one intangible asset category (which meets the

criteria for separate recognition apart from goodwill) was identified for

analysis: customer relationship.



Methodology



Listed below are other potential intangible assets that we examined and

which did not satisfy the material or accounting criteria for recognition:

1. Trade Name – Trade Name is occasionally recognized as an intangible

asset due to the criteria for separate recognition.

According to the Company's management, companies in the aluminum

die-casting components market could not charge a premium regarding a

Trade Name, since there is no added value to their products attributed

to a Trade name. In addition, most of these companies' sales derived

from strong commercial and personal relations with the customer.

Therefore, the Trade Name does not stand alone and cannot be

recognize according to the criteria for separate recognition. Hence, the

asset is not been recognized and we didn’t estimate its fair value.

2. Know How – Know How is usually recognized as an intangible asset due

to the criteria for separate recognition.

In this case, the specific knowledge which the company uses in order to

develop its products is not distinctive to the company. Customers can

purchase similar products from other companies in the sector. The

products that the company offers to its customers, are designed in joint

R&D process of the company and its customers and do not represent or

need exclusive knowledge.

Therefore, the Know How does not stand alone and cannot be recognize

according to the criteria for separate recognition. Hence, the asset is

not been recognized and we didn’t estimate its fair value.



Methodology

WACC WACC

When applying the Income Approach, the cash flows expected to be

generated by a business are discounted to their present value equivalent

using a rate of return that reflects the relative risk of the investment, as

well as the time value of money. This return, known as the weighted

average cost of capital (“WACC”) is calculated by weighting the required

returns on interest-bearing debt and common equity capital in proportion to

their estimated percentages in an expected industry capital structure.

The general formula for calculating the WACC is:

WACC = Kd (D%) + Ke (E%)

Where:

WACC= Weighted average rate of return on invested capital;

Kd= After-tax rate of return on debt capital;

D%= Debt capital as a percentage of the sum of the debt, preferred and

common equity capital (“Total Invested Capital”);

Ke= Rate of return on common equity capital; and

E%= Common equity capital as a percentage of the Total Invested Capital.

CAPM has been empirically tested and is widely accepted for the purpose of

estimating a company’s required return on capital. In applying the CAPM,

the rate of return on capital is estimated as the current risk-free rate of

return on US Treasury bonds, plus a market risk premium expected over the

risk-free rate of return, multiplied by the “beta” for the valued company.

Beta is defined as a risk measure that reflects the sensitivity of a company’s

stock (or capital) price to the movements of the stock market as a whole.

The CAPM rate of return on capital is calculated using the formula:

Ke = Rf + β (Rm * Rf) + Scp + Srp , Where:

Ke= Rate of return on capital;

Rf= Risk free rate of return;

Β= Beta or systematic risk for this type of capital investment (in this case,

asset beta);

Rm – Rf= Market risk premium; the expected return on a broad portfolio of stocks

in the market (Rm) less the risk free rate (Rf);

Scp Small cap premium - Ibbotson valuation edition 2013 yearbook; and

Srp Specific Premium.



DCF Approach

WACC WACC

We based on the Capital Asset Pricing Model (CAPM) in calculating the

WACC.

The following table presents the parameters used for the calculation of the

Company's WACC, as of December 31, 2012:


D/V Ratio - Since the study is conducted from the market participants'

point of view, we examined the comparable companies' rate of debt out

of equity. Due to the fact, that the market's D/V ratio is approximately

35%, the Company's D/V ratio was also determined as 35%.

Risk Free Rate of Return (Rf) – based on German real government bond

for 10 years.

Market Risk Premium (Rm-Rf) - since the company's activity is only in

Germany, we used the German market risk premium (Source:

Damodaran).

Beta – the Beta was calculated according to comparable companies:

Tadir- Gan, national aluminum production, trinity precision technology

co ltd, klil industries ltd, Hulamin ltd, Hoganas ab-b and Catcher

technology co.

Scp – a premium was added to the price of equity. That premium

reflects the excess risk of investments in small companies. This premium

is due to the fact that investments in small companies carry greater risk

than investing in large and established, and therefore investors expect a

higher return when they invest in small companies. A premium of 6.03%

is attributed to the Company (Ibbotson edition 2013 yearbook).

Srp - Specific premium of 1% is attributed to the dependency in few

main customers.

Terminal growth rate of 2% was determined based upon the real economy

expected growth rate in the long run, and upon a conservative element of

the Unit's internal growth.

Name Source Symbol Value

Company's Debt Rate Comparable Companies D/V 35%

Company's Equity Rate Comparable Companies E/V 65%

Cost of Debt BDO analysis Kd 4%

Tax Rate Corporate Tax Rate in Germany T 31%

Risk Free Rate of Return Bloomberg, German Real Government Bonds 10 Yr Rf 0.0%

Market Risk Premium Damodaran Rm-Rf 5.80%

Beta Comparable Companies Beta 1.12

small cap premium Ibbotson valuation edition 2013 yearbook Scp 6.03%

specific premium Dependence on few major customers Srp 1%

Cost of Capital Rf +β*(Rm-Rf)+Scp+Srp Ke 14%

WACC (D/V)*(1-T)*Kd + (E/V)*Ke 10.0%



DCF Approach

WACC WACC

While implementing the Income Approach to evaluate different assets, each

asset should be discounted in a rate reflecting its own risk. The risk and

liquidity of each type of asset being acquired may be greater than, equal to

or less than the overall discount rate of the company (regardless of how it

was computed). In most businesses that possess an array of asset types,

certain acquired assets may be:

a) More risky and/or less liquid (e.g., technology/patents, IPR&D, goodwill);

b) Comparably risky and/or liquid (e.g., customer lists,); or,

c) Less risky and/or more liquid (e.g., fixed assets and working capital).

It is generally appropriate to address this issue by assigning reasonable

premiums or discounts to the overall company discount rate when valuing

specific assets. Individually, each asset requires a higher or lower return

specifically related to the risks associated with that asset achieving its

estimated cash flows. Working capital assets (e.g., cash, accounts

receivable and inventory) and other tangible assets (e.g., machinery and

equipment and real property) have lower risks than intangible assets (e.g.,

Engineering drawings, trained work force, patents, etc.) And therefore have

lower required returns.

In the aggregate, however, the firm's required return represents the

weighted average return of the value of each asset multiplied by its

required return.

The required rates of return for the each of the following intangible asset

were used to derive the appropriate capital “charges” for estimating cash

flows under the income approach[1]: fixed assets – 5.4%; Working Capital –

3.4%; and assembled workforce – 10%;

Section 5: Valuation of Intangible Assets


Section 5

Valuation of Intangible Assets




Customer Relationship

General

General

When an operating entity is sold, the company that was bought is often part

to agreements or relationships that are of material value to the acquirer.

These may include existing agreements with customers and/or returning

customers. Due to the fact that the future cash flow of the business would

be negatively affected in the absence of these agreements or relationships,

they are deemed to have an economic value.

Customer relationship can arise from contracts, but also from other sources

such as ordinary supplier-customer sales-related communications. However,

customer lists are often leased or exchanged. Therefore, customer lists,

acquired in a business combination, normally can be identified separately

from goodwill.

The Company's main customers in the sale of aluminium are manufacturers

of automotive and are the end customers (OEM). This group of customers

represents 78% of all customers. Most of the customers are multinational

corporations, employing thousands of workers, and have continuous working

relationship with the Company trades.

The engagement with the customer is mostly over 7 years. For the first two

years, the Company creates certain components and adjust its production.

For the next five years the production is carried out. There are further 5% to

7% sales which are sold to the Tier-1 customer, as parts. Moreover, most of

the Company's customers have been working with ADB more than 7 years.

The following chart describes the OEM's main customers sales for 2009-2012

and the booked sales for 2013-2017:

The Company has an established relationship with its large customers of the

OEM. The VW Group, which holds the largest share of customer's sale (49% in

2012), is engaged in business with the Company for years. Audi and MAN are

also important customers for the Company. The customers listed above have

sales contracts for the coming years and maintain a close working and

personal relationship with the Company.

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

Audi MAN VW




General General

Most of the Tier 1 customers are contractors in the vehicle industry, which

sell the products to the final consumer. Some customers are subcontractors

in the automotive industry, providing the products it manufactures, by

invitation, to the final customer (automobile manufacturer). Most of the

Company's customers in these sectors are international corporations which

employs thousands of workers.

As customary in the industry, the Company establishes framework

agreements with its customers, base on the commercial relations for the

next 7 years. To this forecast was added a short-term occasional orders each

year.

The following chart describes the Tier-1 customers sales for 2009-2012 and

the booked sales for 2013-2017:

All of the listed tier-1 customers have been working with the Company for

years. The fair value of customer relationship derived from the future cash

flows that expected to arise from each existing customers.

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

DeltaTech KOKI ZF




The Valuation of the Intangible Asset


Following are the customers relationship valuation's main assumptions:

The asset's economic useful life - The economic useful life of the customer

relationship derived from our analysis of the Company's major customers,

which constitute the majority of its revenues. This analysis shows that the

weighted average economic useful life is about 10 years, and more.

Accordingly, it was assumed that the average economic useful life of the

Company's customer relationship is 10 years, and the average annual churn

rate of the Company's existing customers is 20%, starting from 2018, due to

the termination of framework agreements.

Revenue - The revenue from existing customers, which was taken into

account, derived from the company analysis of existing contracts with its

customers, for the years 2013-2017. When determining the expected

revenues from existing customers for the years 2018 to 2022, we took into

considering an annual churn rate of 20%.

The following chart presents the Company's expected revenue amount from

the existing customer, between the years 2013-2022 (in thousands €):


32,277

25,318

21,266

16,440

13,314 13,152

10,521

8,417 6,734

5,387

–

5,000

10,000

15,000

20,000

25,000

30,000

35,000






Gross Profit - the forecasted customer relationships' gross profit is based on

the profitability rates presented in the acquisition model (see Appendix A),

as obtained by Tadir- Gan's management. In addition, the gross profit was

found reasonable in light of Company's outcomes in the years 2011-2012.

Sales and Marketing expenses – It was assumed, that over the entire

forecasted period, the Sales and Marketing expenses ratio from existing

customers, out of the revenue, will be at the corresponding rate in the

acquisition model due to high marketing efforts, attributed to existing

customers, in order to preserve those customers.

General and Administration Expenses – It was assumed, that over the

entire forecasted period, the general and administration expenses ratio from

existing customers, out of the revenue, will be at the corresponding rate in

the acquisition model.

Income Tax – A 31% tax rate was deducted from the forecasted cash flow,

according to the effective applicable to the Company in Germany.

Contributory Charges - Contributory charges were applied to the after-tax

cash flow, to reflect the returns on other assets required to sustain the

customer relationship. These assets included assembled workforce, fixed

assets, and working capital (for details about the contributory charges

calculation see Appendix B).

Tax Benefit - Tax savings due to amortization of the asset were added to

derive the Fair Value of the customer relationship. These tax savings reflect

the future tax benefits associated with amortizing the asset for income tax

purposes. Accordingly, the value of the estimated tax benefit is 21% (see

Appendix C).

Discount Rate - Net cash flows were capitalized at discount rate of 10%

according to the Company's weighted average cost of capital (see section

methodology – WACC calculation).

Asset Valuation - Based upon the above assumptions, the value of the

customer relationship was estimated at a negative value. Therefore, we

assumed that the fair value is equivalent to zero.





The following table presents the valuation of the fair value of the customer relationship, for the Closing Date (in thousands €):

Thousands € 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Income 32,277 25,318 21,266 16,440 15,977 13,152 10,521 8,417 6,734 5,387

Costs Of Products 28,488 22,289 18,621 14,372 13,954 11,486 9,189 7,351 5,881 4,705

Gross Profit 3,789 3,030 2,646 2,068 2,023 1,665 1,332 1,066 853 682

% of revenue 11.7% 12.0% 12.4% 12.6% 12.7% 12.7% 12.7% 12.7% 12.7% 12.7%

Operating Expenses 2,609 2,025 1,664 1,278 1,237 1,018 815 652 521 417

% of revenue 8.1% 8.0% 7.8% 7.8% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7%

Operating Profit 1,181 1,005 982 790 786 647 518 414 331 265

% of revenue 3.7% 4.0% 4.6% 4.8% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9%

profit before tax 1,181 1,005 982 790 786 647 518 414 331 265

% tax 31% 31% 31% 31% 31% 31% 31% 31% 31% 31%

tax 366 312 305 245 244 201 161 128 103 82

profit (loss) afret tax 815 693 678 545 542 447 357 286 229 183

% profit (loss) afret tax 2.5% 2.7% 3.2% 3.3% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4%

contributory charges

Fixed Assets 723 567 477 368 358 295 236 189 151 121

Working capital 55 43 36 28 27 22 18 14 12 9

Workforce 214 168 141 109 106 87 70 56 45 36

net cash flow- after tax (178) (85) 24 40 51 42 34 27 22 17

period for discount 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5

DCF (169) (74) 19 28 33 25 18 13 10 7

Total DCF (89)

Tax Benefit Factor 20%

Tax Benefit (22)

Fair value (112)




Assembled Workforce Assembled Workforce The assembled workforce was valued for the purpose of calculating the

appropriate contributory charge to be deducted from each of the intangible

assets cash flows. We used the Cost Approach to value the trained workforce

of the Company as of the Valuation Date. The Company has realized savings

from obtaining a fully efficient, pre-existing, trained workforce totalling 354

employees, rather than incurring the costs to assemble such a workforce.

These savings have been achieved by employing the following methods:

Recruiting and screening expenses - Recruiting fees include recruiting

costs and placement fees (executive search firms) typically incurred to

hire new employees. Screening potential employees includes reviewing

resumes, interviewing and performing reference checks on the

candidates.

Training and orientation expenses - Training and orientation expenses

were calculated by multiplying the average time required to train a new

employee by the compensation rate, including benefits of the trained

employee. Training costs include the start-up time for the trainee to

become oriented with the organization and reasonably proficient at his

or her task. Orientation costs were calculated by multiplying the

average time needed by a new employee to attain a full level of

productivity (the start up time) by the compensation, including the

benefits, of the new employee.

Based on this analysis, the Fair Value of the assembled workforce of the

Company was estimated at € 2.3 million (see Appendix B).

Section 6: Results


Section 6

Results

Section 6: Results


Results

Results Results

The balance sheets data as of the Valuation Date is based on the Company's

financial data as of December 31, 2012.

According to the assumptions detailed in this report, we have arrived to the

conclusion that some of the acquired intangible assets were needed to

revaluate to reflect market value. The following table provides details

regarding the Company's assets and liabilities (in thousands €):

Source: Company's financial reports and BDO analysis.

Source: company's financial reports and BDO analysis.


Purchase Price

Assets

Current Assets

Cash and Cash Equivalents 2,029 2,029 – 26.7%

Account Receivable 1,805 1,805 – 23.7%

Other Receivable 1 954 954 – 12.6%

Inventories 2 2,377 2,377 – 31.3%

Fixed assets 3 12,549 14,076 1,526 185.2%

Deferred tax 4 – (473) (473) -6.2%

Intangible assets 34 34 – 0.4%

Total Current Assets 19,748 20,801 1,053 273.7%

Non Current Assets

Long Term Investments 8 8 – 0.1%

Total Non Current Assets 8 8 – 0.1%

Total assets 19,756 20,809 1,053 273.8%


Purchase Price

Liabilities

Current Liabilities

Short term Liabilities 5 399 399 – 5.3%

Account Payable 6 1,602 1,602 – 21.1%

Other Payable 1,817 1,817 – 23.9%


Deferred tax 4 – (61) (61) 0.0%

Total Non Current Liabilities 3,819 3,956 137 52.1%


Long term Liabilities 8 5,781 5,781 – 76.1%


Deferred tax 4 – (76) (76) 0.0%

Total Current Liabilities 5,781 5,951 170 78.3%

Total Liabilities 9,600 9,907 307 130.4%

Total net assets 10,155 10,902 746 143.4%

Intangible Assets

Customers Relationships 10 – – 0.0%

Total Intangible Assets – – 0%

Gain from bargain purchase 11 (3,302) (43%)

Purchase Price 12 7,600

Section 6: Results


Results

Notes Notes

1. Other Receivable- According to the Company, the receivable, as of the

Valuation Date, is attributed to short-term operating amounts, which

received by the customers during the last business year and expected to

be charged during the current year. Therefore, there is no difference

between the book value and the fair value of the Trade and Other

Receivable balance and no adjustments have been made.

2. Inventory- The book value of the Company's inventory is €2,377

thousand and consists of raw materials and other (22%), finished goods

(1%) and work in process (77%). According to Company's management

and our analysis there is no difference between the book value and the

fair value of the Inventory balance and no adjustments have been made.

3. Fixed Assets- The Company's fixed assets, as presented in its financial

report, consist mostly of buildings improvements, Moulds and machinery,

office furniture and prepayments and construction in progress. The fixed

assets are located at the Company's facilities in Germany and Poland and

serve the Company's operating activity.

According to Company's management, the book value of the buildings

improvements, office furniture and prepayments and construction in

progress, represents their fair value. However, the book value of the

machinery does not reflect their fair value.

Therefore, we based the machinery value on an assessor valuation, as of

December 31, 2012, which was received by Tadir-Gan Europe. This

valuation was made by an expert, on behalf of the Company, and was not

examined by us. According to the expert valuation, there is a difference

between the book value and the fair value of the machinery assets of

€1,526 thousand. In addition, the weighted average economic useful life

of the machinery, according to the assessor valuation, is about 18 years.

4. Deferred Tax – received by Company's management.

5. Short term Liabilities- According to the Company, the Company's short

term financial liabilities consists of liabilities to banks. Since this

liability is expected to be paid in the coming year, no adjustments have

been made.

6. Account Payable- According to the Company, the Account Payable, as of

the Valuation Date, is attributed to short-term operating amounts,

which are received by the suppliers during the last business year and

expected to be charged during the current year. Therefore, there is no

difference between the book value and the fair value of this balance and


7. Current Employee Provision- According to Tadir-Gan Europe's

management, as part of the reorganization attributed to the business

combination, Mr. Jochen Krüger (former owner), which was also one of

the Company's two CEO's, has finished his role in ADB as of April 1st,

2013.

Section 6: Results


Results

Notes Notes

According to his constrain agreement; the Company will continue to pay

salary to Mr. Krüger until the restrictive employment agreement will

terminate, at the end of 2014. We evaluated the fair value of the

liability to pay Mr. Krüger's salary in an amount of €445 thousand, while

the Current Liability was set on €198 thousand. For more information

see appendix D.

8. Long term Liabilities- According to the Company, the Company's long

term financial liabilities are liabilities to banks, which are presented in

its fair value, since the interest on these liabilities is fixed and

represents the market interest for company in ADB risk level. Therefore,


9. Non Current Employee Provision- As mentioned in note 5, we evaluated

the fair value of the liability to pay Mr. Krüger's salary in an amount of

€445 thousand, while the Non Current Liability was set on €247

thousand. For more information see appendix D.

10. Customers Relationships- As part of the business combination, we

evaluated the fair value of the Company's Customers Relationships, as an

intangible asset, using the Income Approach. According to the valuation

the fair value of the intangible asset was set to zero. For more details

see Chapter 7- Valuation of Intangible Assets.

11. Gain from bargain purchase- The difference between the purchase

price and the fair value of the Company's net assets and intangible

assets, represents the gain from bargain purchase. The gain from

bargain purchase is attributed to the seller's pressure to sell their

holdings in the Company. In 2007, IKB Equity Capital Fund bought 49% of

the Company. During the global economic crisis, in 2009, the Company's

activities declined and the Company entered into the process of self

insolvency by the end of 2010. IKB fund decided to close their business

in the automotive area as of few investments that fail to achieve yield

along with few years of constrains in the industry in Europe, there for

they made a decision to sale the Company as soon as possible. 51% of

the Company's shares were held by private shareholders, which were

required by contract, to sell their holdings whether IKB Fund decides to

(Bring Along). In this transaction, Tadir-Gan Europe seized the

opportunity, and acquired 100% of the Company's shares, at a bargain

price. The Purchase Price is allocated to the tangible, with any

remainder allocated to gain from bargain purchase. Accordingly, the fair

value of the gain from bargain purchase totalled to approximately

€3,637 thousand.

12. The purchase price- According to the transaction agreement the

purchase price of the Company was €7,600 thousands. For more

information see Section 1- The Acquisition.

Section 7: Appendix


Section 7

Appendix

Section 7: Appendix


Appendix A

The Acquisition Model

The following table shows the acquisition model- Base Case Scenario (in thousands €):

Source: Company Management.

Thousands € 2011 2012 2013 2014 2015 2016 2017 Terminal year

Net Revenue 39,658 34,665 34,537 36,413 40,810 42,120 42,962 43,821

% growth (13%) (0%) 5% 12% 3% 2% 2%

Costs Of Products 34,650 30,903 30,482 32,055 35,733 36,822 37,522 38,272

% of revenue 87% 89% 88% 88% 88% 87% 87% 87%

Gross Profit 5,008 3,762 4,055 4,358 5,077 5,298 5,440 5,549

% Gross profit 13% 11% 12% 12% 12% 13% 13% 13%

Total Operating Expences 2,469 2,758 2,791 2,912 3,192 3,274 3,326 3,393

% of revenue 6% 8% 8% 8% 8% 8% 8% 8%

Operating Profit 2,539 1,003 1,263 1,445 1,885 2,024 2,114 2,156

% Operating Profit 6% 3% 4% 4% 5% 5% 5% 5%

Tax (392) (448) (584) (627) (655) (668)

Tax Rate 31% 31% 31% 31% 31% 31%

Net Profit After Tax 872 997 1,301 1,396 1,459 1,488

Change in Working Capital 17 97 228 68 44 43

Investment In Fixed Assets – (3,821) (3,664) (3,798) (3,780) (3,856) (3,933)

Depreciation – – 3,605 3,664 3,798 3,780 3,856 3,933

Annual Cash Flow 638 900 1,073 1,328 1,415 1,445

Time 0.50 1.50 2.50 3.50 4.50 4.50

Residual Value 18,057

DCF 608 780 846 952 921 11,759

WACC 10%

Total DCF 15,866

None Operatinal Assets 2,029

Less Financial Liabilities 6,181

Equity Value 11,715

Section 7: Appendix


Appendix B

Workforce and Contributory Charges Contributory Charges

Workforce

The following table presents the workforce fair value calculation as for the

Valuation Date (in thousands €):


Contributory Charges

The following table presents the contributory charges calculation:


Fixed Assets – The fixed assets' Fair Value is based on an external expert

valuation which was received by the Company management and was not

tested or examined by us. The difference between the book value and the

fair value is attributed to the machinery expert's valuation, of the Company's

plants and machinery. The fixed assets contributory charge was calculated

as 2.2% of the revenues for any given period.

Working capital – Based on the working capital's fair value, which is similar

to the book value, except the inventory balance fair value (see appendix D).

The working capital contributory charge was calculated as 0.2% of the

revenues for any given period.

Workforce – the value of the workforce asset was estimated according to

the Cost Approach and calculated as the cost of recruiting and training

personnel. According to management opinion, the cost of recruiting

activities is equal to one working month salary per employee. The duration

of training and recruiting activities is four to six working months per

employee.

Representative Income – the revenue of 2012 was taken as a representative

income for the Company's activity.

Thousands €

Department

Production 318 2.0 4

Marketing 5 3.2 4

Administration 31 3.5 6

Total employees 354

Total asset value 3,326

Corporate tax 31%

Asset value, net 2,295

Average Training &

Recruiting period

Average monthly

wage (gross)

Number of

employees

fair

value

rate of return

(before tax)

rate of return

(after tax)

annual

charge

representing

income

percentage of

total revenues

Fixed Assets 14,076 8% 5.5% 777 34,665 2.2%

Working Capital 1,716 5% 3.5% 59 34,665 0.2%

Workforce 2,295 10.0% 229 34,665 0.7%

Section 7: Appendix


Appendix C Appendix D

Tax Benefit Employee Provision

The following table presents the Tax Benefit factor of the Company's

Customer Relationship Asset;


The payroll payments of Mr Krüger, for the years 2013 and 2014, were set at

€445 thousand.

When calculating the Company's liability to Mr. Krüger, we addressed these

expenses as a loan which was taken from Mr. Krüger, by the Company.

Hence, we have capitalized the amounts, paid each month, by the

Company's cost of debt, as of December 31, 2012 for a period of 2 years.

Therefore, we have recognized a Non Current Liability in an amount of €247

thousand, and a Current Liability in an amount of €198 thousand, which

represents the liability's fair value.

The following table is the Company's specified salary payments, for Mr.

Jochen Krüger, for the years 2013-2014:


NO Capitalization Period % Yearly Amortization % Tax C * D PV(E) @10%

1 0.50 10% 31% 3% 3.0%

2 1.50 10% 31% 3% 2.7%

3 2.50 10% 31% 3% 2.4%

4 3.50 10% 31% 3% 2.2%

5 4.50 10% 31% 3% 2.0%

6 5.50 10% 31% 3% 1.8%

7 6.50 10% 31% 3% 1.7%

8 7.50 10% 31% 3% 1.5%

9 8.50 10% 31% 3% 1.4%

10 9.50 10% 31% 3% 1.3%

20.0%Tax Benefit Factor

Tax Benefit Calculation

Thousands € Base Social Car

Total per

month

Total per

year

Discounted

salary per year

2013 15 1 1 17 201 198

2014 20 1 1 21 256 247

457 445 Total amount

alu-druckguss gmbh adb group - tase · 2013-08-15 · according to the expert valuation, there is a...

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